Gregoire to successor: You’ll need a tax increase

OLYMPIA -- Gov. Chris Gregoire served warning today to her two would-be successors that the budget plans they push on the campaign trail won't work, and they'll need to find some sort of new revenue -- usually translated as a tax increase -- to balance the budget and meet the demand for better public schools.

At a press conference to announce a new federal waiver that will help the state save money by developing a new program for residents eligible for both Medicare and Medicaid, Gregoire said she was looking at a revenue increase for the 2013-15 budget she will propose next month.

Former U.S. Rep. Jay Inslee, a fellow Democrat, and Attorney General Rob McKenna, a Republican, both have said they will not raise taxes if they are elected. Gregoire essentially dismissed that talk as standard campaign rhetoric.

"I'm not running for office," she said. They're candidates and "I'm a realist."

"I'm telling both candidates I don't know how you can meet your obligations for McLeary without new revenue," she said, referring to a state Supreme Court ruling that says the state needs to spend more to meet its constitutional requirements to fund basic education.

Inslee has said he can avoid a tax increase, in part, by finding savings in the state budget through the use of better management, known as "Lean" management. But Gregoire has already institute Lean management, and attended a conference earlier this week to discuss the progress made so far. It won't provide enough savings to free up the $1.1 billion needed to meet the needed improvements to public schools in 2013-15, she said, adding that she still supports Inslee, even though she disagrees with him on this.

McKenna is also wrong when he says he can find the money for better schools by capping the growth of other state programs, she said. Many programs aren't scheduled to grow as much as his proposed cap, and when costs go up in some programs, driven by a growing number of children in schools, families on social services or felons in prisons, the state doesn't have the flexibility not to pay.

"When your case load goes up, you have to match it," she said.

Both candidates have mentioned closing tax loopholes -- credits or exemptions offered to certain businesses or industries to stimulate the economy and increase jobs. Gregoire said she said the same thing in 2004, when she was a first-time candidate for governor. But each exemption has a constituency that lobbied the Legislature to approve it, and will fight to keep it.

"You better be ready with a two-thirds vote" in both houses, which is what is currently required for removing any exemptions, she said.

Gregoire does have her budget staff reviewing ways to increase state revenues to include in the 2013-15 budget that she will propose later this year. "I have to, as part of my budget, put forth a solution."

They're looking for something that has the capacity to grow, would be considered fair, and survive a vote of the public, she said.